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Ranbaxy: Solid fundamentals - Views on News from Equitymaster
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  • Sep 16, 2003

    Ranbaxy: Solid fundamentals

    Ranbaxy Laboratories has been gaining steadily on the bourses for quite some time now. Apart from the general upturn in the stock market, fundamentals have also played a big role. Successive US-FDA approvals, as is evident from the following chart, have provided a fillip.

    For instance, on June 23rd 2003, Ranbaxy received US-FDA approval to manufacture and market the anti-biotic drug 'Isotretinoin Capsules' under the brand name 'Sotret'. On June 30th 2003, a 180-days exclusivity approval for 'Ganciclovir Capsules' also came as a shot in the arm. Resultantly, the stock price rose from Rs 714 on June 23rd 2003 to Rs 842 on July 3rd 2003 (a gain of almost 18%). So what do these approvals mean for the company?

    If an Indian company desires to sell a drug in the US markets, it is required to obtain an approval from the US Food and Drug Administration (US FDA). The nature of these approvals varies depending upon the type of application made by the company. Thus, if an Abbreviated New Drug Application (ANDA) is filed under Para IV for a drug, an approval would result in the company obtaining a 180-days marketing exclusivity. Being the sole player apart from the patent holder, the company will be able to generate huge revenues during this period of exclusivity. On the other hand if the ANDA is filed under Para I (not patented), II (patent expired) or III (patent set to expire), the company will get a right to sell the drug (but not an exclusive one). Consequently, revenues from such approvals will not be as high as is in case when a Para IV ANDA filing is made.

    Consider the table below. Ranbaxy has received in all 10 US-FDA approvals in 2003 (2 being tentative in nature). As the ANDA for 'Ganciclovir Capsules' was filed under Para IV, Ranbaxy will have a 180-days marketing exclusivity for the drug, which could result in huge revenues for the company. The market size of 'Cytovene' (patented drug of which Ganciclovir is a generic) was estimated at US$ 32 m. Assuming a 75% market share for Ranbaxy and a price discount of 30% over the patented drug price, Ranbaxy will generate revenues to the tune of US$ 17 m (32*0.75*0.70). In case of other approvals, the combined cash flows from the same would be the key growth drivers for the company going forward.

    US-FDA approvals received by Ranbaxy in 2003
    Date of approval Name of the drug Therapeutic
    Market size
    (US $ m)
    Sep 12th Metformin oral solution Anti-diabetes 1600*
    Sep 3rd Ofloxacin tablets Anti-infective 30
    Aug 21st Loratadine tablets Anti-histamine 944
    Aug 14th Amoxicillin tablets Anti-infective 106
    July 14th Fluconazole** Anti-infective 24
    June 30th Ganciclovir Capsules Anti-infective 32
    June 23rd Isotretinoin Capsules Anti-biotic 415
    Mar 27th Cefadroxil Powder Anti-infective 17
    Mar 20th Amoxicillin and Clavulanate
    Potassium for Oral Suspension
    Anti-infective 273
    Mar 3rd Benazepril Hydrochloride Tablets** CVS 333
    * Market size is for all forms of Metformin
    ** Tentative approvals

    Thus, the above approvals on a combined basis will ensure a steady flow of revenues for the company. At Rs 970, Ranbaxy is trading at a P/E of 22x FY04E earnings. In view of Ranbaxy's strong growth potential in the generics segment combined with its focus on developing a strong NCE and ANDA pipeline, we remain optimistic about the long-term prospects of the company.



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